Investing term
What is Free cash flow (FCF)?
Cash from operations minus capital expenditures — the cash actually available to shareholders or debt holders.
Free cash flow (FCF) is the cash a company generates from operations after subtracting the capital spending needed to maintain and grow the business — put simply, cash from operations minus capital expenditures. It's the cash truly left over once the business has funded itself.
That leftover cash is what's genuinely available to reward shareholders — through dividends, buybacks, or paying down debt — or to reinvest in new opportunities. Many investors trust FCF more than reported net income, because it's grounded in actual cash and net of the real investment a company must make. A business that consistently produces strong free cash flow has genuine financial freedom; one whose profit never turns into free cash flow, because it's all consumed by capital spending, has far less than its earnings suggest.
Free cash flow is operating cash minus capital expenditure — the cash genuinely available after funding the business. Grounded in cash, not accruals, many investors trust it more than reported profit.
For example
A company generates $100M of operating cash flow and spends $30M on capital expenditure, leaving $70M of free cash flow — the cash actually available to shareholders.
Learn it by doing
That's Free cash flow (FCF) in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 14, Reading Financial Statements).
Try the free lesson →Why it matters to you
Free cash flow matters because it's the cash that's actually available to owners after the business has been funded — arguably the truest measure of the value a company generates. It underpins dividends, buybacks, and debt reduction, and it's a core input to valuation. Because it's net of real capital spending and grounded in cash rather than accruals, FCF is harder to manipulate than earnings, making it one of the most reliable gauges of a company's genuine financial strength.
⚠ Ignoring that growth CapEx inflates near-term FCF cuts
A company can boost reported free cash flow simply by underinvesting — cutting capital spending — which lifts FCF now but starves the business of future growth and eventually forces catch-up spending. High FCF from slashed CapEx isn't the same as high FCF from a genuinely cash-generative business. Check whether strong free cash flow reflects real strength or deferred investment.